Recent events are only expected to happen once every one billion years or so.
I attended a seminar given by a highly regarded risk management company recently. The topic of the discussion was around planning investment portfolios and how to manage risk within them.
This company and the research they do is clearly based on highly methodical and mathematical approaches to their work. They include scenario based testing that takes account of some 10,000 different worldwide possibilities to come up with a solution for client investment portfolios that is designed to deliver more predictable future returns.
Having completed significant research into the past few years they concluded that it was a bit of a one off. They classified it as a 6-sigma event which was expected to occur once every one billion years or so. On that basis we shouldn’t see another like it in our lifetimes!
What was interesting was that after all was said and done, to me all they really concluded was that to build a sensible portfolio you need to hold a variety of different types of investments, in the right proportions, and review this regularly with a healthy serving of common sense to look at what is likely to happen in the future.
It’s not rocket science, but it really works.